HC Deb 06 November 1986 vol 103 cc1068-70
3. Mr. Patrick Thompson

asked the Chancellor of the Exchequer if he will estimate the total tax yield from those earning more than £25,000 per annum in (a) 1978–79 and (b) 1985–86.

The Chief Secretary to the Treasury (Mr. John MacGregor)

Taxpayers with incomes of more than £25,000 paid £8.7 billion in income tax in 1985–86, which was 22.8 per cent. of the total. These taxpayers represent just under 4 per cent. of all income tax payers. The same top percentage of taxpayers in 1978–79 paid £7.8 billion in income tax at 1985–86 prices, which was 20.6 per cent. of the total.

Mr. Thompson

I thank my right hon. Friend for his reply. Does he agree that that destroys the credibility of Labour's plans for raising extra revenue? Does he accept that the result of a Labour Government would be a renewed flight of talent from this country and high tax on the low earner?

Mr. MacGregor

My hon. Friend is quite right. The figures I gave show that the yields have increased, with lower taxes on the higher paid. They show what we have always said, that getting taxes down from the penal rate levels under the last Government motivates the wealth creators, to the benefit of the whole country, and increases yields. Labour's policy of a return to the rates of tax that existed in 1979 would, as my hon. Frind said, drive many of our most able, energetic and ambitious people out of the country.

Mr. Ashton

Are not the statistics in this planted question so obviously fiddled? Surely, if an extra 3 million people are taken out of taxation by being put on the dole, it affects the bottom of the pyramid and makes it look better at the top.

Mr. MacGregor

I was talking about a percentage of the total tax. I should like to make it clear to the hon. Gentleman that the figures are not fiddled. They are accurate figures and they demonstrate that a higher proportion of the taxes currently obtained—it is not a question of people at the bottom end coming out —comes from those with higher earnings, because of the motivations we have introduced.

Mr. Nicholls

As increasing tax rates on the rich actually produces less revenue and not more, does that not mean that if Labour were to impose such tax bands the £24 billion that it has to raise for its social spending would have to be raised entirely from those paying the standard rate income tax?

Mr. MacGregor

It is true that under a Labour Government —if ever there was one again—tax would rise on all income groups. My hon. Friend does not need to go as far as that. Labour's plan to raise £3.6 billion from the top 5 per cent. would mean tax rates of 70 per cent. for all those—including married couples with both partners earning—with earnings above £24,000. That is clearly a crippling increase in the tax burden on those groups. I believe that it would reduce yields, but it would have much more serious effects on the economy as a whole.

Mr. Watts

Does my hon. Friend agree that priority should now be given to reducing further the standard rate of tax, which is the marginal rate for most taxpayers? As cuts in the top rates of tax have increased revenue, is it not possible that there would be a similar effect if the standard rate were cut?

Mr. MacGregor

I am sure that my hon. Friend noted that in his Budget this year my right hon. Friend the Chancellor of the Exchequer deliberately skewed the tax reductions—this was with emphasis on the basic rate—in favour of those with average to lower incomes. It is precisely that group, which we believe is still taxed too highly, which will gain most from the Chancellor's longterm pledge on income tax.

Mr. Gould

Is my hon. Friend the Member for Bassetlaw (Mr. Ashton) not right when he says that the figures produced by the Chief Secretary are suspect because the percentages that he quotes are those of a much narrower tax base, a base which has been made narrower by the unemployment which the Government's economic policies have produced?

Mr. MacGregor

The absolute amount of tax increased from this group for the two years at 1985–86 prices, and not proportionately. That is why lower taxes, which motivate people, have in this instance produced a higher yield.

Mr. Wrigglesworth

If the Government believe in lower taxes, why in the long period of seven years that they have been in office have they increased taxes for the average taxpayer by 3p in the pound?

Mr. MacGregor

If income tax had remained at the same rates and allowances as in 1978–79, an additional £8 billion would have come through from income tax in this period. That is a sign of how we have been following our policy of reducing direct taxes.